Why ULIP's are bad for your financial life.

Flashback...चार साल पेहले...

The row between the Insurance Regulatory and Development Authority (IRDA) and the Securities and Exchange Board of India (Sebi) is turning into an arm-wrestling match between two statutory bodies with huge clout. The chain of Sebi's argument goes like this: Life insurers offer unit-linked insurance plans (Ulips), Ulips invest in equity, hence, Sebi wants Ulip schemes registered like mutual funds. IRDA has no intention of ceding control. Since both regulatory bodies have clout, they will eventually work out some compromise.

और अब And Now....

The so-called turf-war on ULIPs that SEBI and IRDA have been fighting has now taken a life of its own. In reality, just about the least important thing is who regulates ULIPs, while the most important thing-or rather, the only important thing-is that investors understand what they are getting into and make the choices that are best for them. I find that there's a great deal of misinformation floating around about ULIPs and why exactly are so called investment - insurance advisors in favour of them.

Perception: ULIP expenses have been lowered by IRDA. Expenses are now down to just 3 per cent for ULIPs of up to 10 years and 2.25 per cent for longer ones. Mutual funds, by comparison, have higher fund management charges.

Reality: The way IRDA has framed the rules, 2.25 or 3 per cent is effectively the average over the entire lifetime of a ULIP. The charges are heavily front-loaded. During the first year, these charges are as high as 40 to 70 per cent. If the customer cannot continue with a policy for any reason, then his real expenses are far higher. And as it happens, a huge proportion of policies lapse during the earlier years. The front-loading has no logic, except to enrich insurers and agents. And fund management charges being lower than mutual funds is a not a full comparison. In mutual funds, total expenses are capped at 2.25 per cent for equity funds and less for other funds. These are not comparable to the fund management charges of ULIPs because ULIP customers also pay premium allocation charges, policy administration charges, mortality charges, and for guaranteed ULIPs, guarantee charges. Comparing fund management charges alone is a joke.

Perception: ULIPs have led to a massive rise in insurance penetration in India.

Reality: Insurance means insurance, in the sense when the insured person dies, his family gets money to pay for food, rent and education. In a country with minuscule social security as ours, the growth of insurance has to mean the growth in the reach and quantum of risk cover for lives. To call a non-insurance, market risk-bearing product such as ULIP insurance and then present it as evidence of the growth of insurance is simply dishonest.

Ulips have been around for several years. The structures are known. Almost every financial newspaper and business magazine of repute has analysed Ulips and shown in detail why investors should avoid them.In themselves, Ulips are not fraudulent; it's just that investors can get far better deals. So this is a classic case of “buyer beware”. If investors insist on buying Ulips, there isn't much more that can be done since there are already ample warning signs in the public space. It is also easy to understand why agents push Ulips - due to huge front-loaded commissions.

Having said that, the mistake investors make, is to confuse insurance with investment. Insurance is a bet you want to lose. Investment is a bet you want to win. 

Two entirely separate intentions. Use two different instruments.

Ninad Kamat

CERTIFIED FINANCIAL PLANNER^CM

www.letsmakeaplan.in

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Image Source: GKtoday.in

Why You need Health Insurance

Consider this : 

In Bengaluru, consultant architect Francis Jackson had to rush to the hospital in January this year as he complained of shooting pain in the abdomen. Sure enough, it was diagnosed as a kidney stone and Francis had to undergo surgery for the same.
The cost of the procedure and stay at hospital was Rs 75,000.

Thankfully he didn’t have to shell out a single rupee, as he was covered under a Health Insurance plan with a limit of up to 3 lacs.

What is Health or Medical Insurance ?
The term health insurance is generally used to describe a form of insurance that pays for medical expenses. It is sometimes used broadly to include insurance covering disability or long-term nursing or custodial care.

To understand it in simple words, you pay some amount of premium every year to a company, and if some thing happens to you, like an accident or if you have to undergo a surgery, the company will reimburse/pay for it, provided the illness is covered under the Health Insurance Plan.


Why do I need a Health Insurance ?
This is the most common thing you can hear from a person who wants to avoid Health Insurance, but its one of the most important part of any financial portfolio or plan. People concentrate on the fact that, what if nothing happens to them, but they fail to imagine the situation when some thing can actually happen.

The human body is a complex thing, and no one knows what can happen in future, even things like accident is not in your hand , you can take try to avoid it, but what about others, what if some car hits you? What if accidentally you fall from some place? It can happen and it does happen, and when you have to pay a hefty bill for the treatment, you will soon realise that its a good idea to get covered by paying a small premium every year, rather than spending your hard earned savings.

Why is Health Insurance more important now as compared to earlier years
Yes , Health care costs have increased many fold in last 20-30 yrs. Also now, more and more young people are complaining of heart and other diseases which were seen in older people earlier. Because of high stress jobs, poor eating habits and other similar problems, rise in the number of cars, pollution etc, the probability of getting some illness or meeting with an accident has increased substantially compared to earlier days.

What can you do..

• Get a good coverage for diseases and surgeries.
• You have to pay the premium annually for which you can plan ahead, set up a Recurring Deposit A/c or start an SIP in a Liquid fund to set aside money for your annual premium.
• You get tax deduction under section 80D up to Rs 15,000(subject to IT Rules)
• You can also go for group insurance(family floater), its ideal for a family with spouse, parents, kids … With group Insurance every one is covered and you pay less premium , also its more advantageous because there are many things which are covered in group insurance and not single person health insurance.
• Do some online research and choose the product.

Ninad Kamat

CERTIFIED FINANCIAL PLANNER^CM

www.letsmakeaplan.in

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